UPDATE 2-Mexico annual inflation cools to lowest in nearly 4 years

Reuters Staff

2 Min Read

(Adds comparative data)

MEXICO CITY, Feb 9 (Reuters) - Mexico’s annual inflation rate cooled sharply in January to its lowest in nearly four years, backing bets that the central bank will leave interest rates at record lows in the coming months to support a sluggish economy.

Inflation in the 12 months through January eased to 3.07 percent, national statistics office data showed on Monday below the 3.10 percent expected in a Reuters poll and down from 4.08 percent in December.

It was the lowest annual rate since March 2011.

Mexico’s annual inflation rate has eased back from a nine-month high in October, and the central bank has said it expects inflation to fall below its 3 percent target by the end of the year amid slack domestic demand in the economy.

Mexico’s central bank left its benchmark interest rate on hold at 3 percent in January, but said a slump in the peso could add to inflation. Mexico is seen raising interest rates once the U.S. Federal Reserve lifts borrowing costs.

Yields on Mexican interest rate swaps were little changed after the data as investors stuck to bets that eyed at least a 25 basis point hike by July.

Consumer prices fell by 0.09 percent in January from December, compared with expectations for a 0.07 percent drop .

Core inflation, which strips out some volatile food and energy costs, was down 0.03 percent, weaker than a forecast rise of 0.03 percent.

Mexico’s peso tumbled sharply late last year, dragged down by plunging oil prices. The shock to Mexico’s government to from lost oil revenue pushed the finance ministry to cut the 2015 budget, further dampening growth prospects. (Reporting by Michael O‘Boyle Editing by W Simon)